This Article Is About Gift Funds For Down Payment On Home Purchase
Gift funds for down payment on home purchase are allowed on government and conventional loans for the down payment and closing costs:
- FHA, VA, USDA, Fannie Mae, and Freddie Mac allow gift funds to be used
- However, there are rules and regulations with regards to gift funds
- Each loan program has their own lending guidelines on gift funds
- One of the major things mortgage underwriters will scrutinize is whether the gift funds are an actual gift and not a loan
- Gift funds need to be a gift by a family member and cannot be paid back
- Many families help each other out
- For example, a parent may give their children gift funds to purchase a home
- A grandparent may give their grandchild gift funds to be used towards the down payment of their home purchase
- A couple may get gift funds as their wedding gift from family or close relatives where they can use that as a down payment for their home purchase
How Underwriters View Gift Funds For Down Payment On Home Purchase
Mortgage underwriters are the folks who will analyze the borrower’s mortgage application.
- Underwriters decide whether to issue a mortgage loan approval or mortgage loan denial
- Mortgage Underwriter is probably the most important person in the mortgage approval process
- This is because ultimately, the mortgage underwriter is the person who issues the clear to close
- Gift funds can be used for both the down payment and closing costs
- However, sellers concessions and lender credit can only be used for closing costs
- A clear to close means that the mortgage lender is ready to fund the loan
Mortgage underwriters will review the following:
- credit scores
- credit history
- past bankruptcy
- past foreclosure
- past short sale
- divorce decree
- child support payments
- all other liabilities
How Mortgage Underwriters Review Borrowers File
When a mortgage underwriter reviews borrowers’ assets, they will especially look for if they have enough funds to close on their home purchase transaction. Or if it is a refinance mortgage, they will see if the borrower has enough funds to close on their refinance mortgage loan.
- When mortgage underwriters see borrowers have enough funds to close, the next thing they will look at is whether those funds have been seasoned and sourced
- Mortgage underwriters will be reviewing 60 days of bank statement
- Will pay special attention to large deposits and irregular deposit in the bank account and/or bank accounts
- The way underwriters view gift funds is they want to make sure that gift funds are actual gifts and not loans
- The reason behind this is lenders do not want to see borrowers struggling to make mortgage payments
- Plus a personal loan monthly payment that borrower got for a down payment is an extra monthly debt payment that can stress borrowers in making their mortgage payments timely
This can cause a strain on the homeowner and increases the chances of the new home buyer being late or even defaulting on their new mortgage.
How Gift Funds For Down Payment On Home Purchase Works?
There are procedures on how gift funds for down payment on home purchase work.
- A family member cannot just give a home buyer cash money and they just deposit it in their bank account
- Before accepting gift funds for down payment on a home purchase, ask the loan officer for directions
- The loan officer will clarify that gift funds for down payment needs to be sourced
- The donor of gift funds for down payment on home purchase needs to complete a gift letter
- The gift letter states that the gift funds is not a loan and that the gift funds do not need to be paid back
- The donor of the gift funds needs to provide 30 days of the donor’s bank statement showing that the gift funds were seasoned in the donor’s bank account for at least 30 days
- The gift funds leaving the donor’s account needs to be reflected in the bank statement of the donor
- The recipient of the gift funds needs to provide the copy of the check, the deposit slip
A new bank transactional history print out that is signed, dated, and stamped by the bank teller reflecting the funds in the bank account of the recipient needs to be provided.
The following information needs to be on the gift letter.
The donor’s name, address and phone number
- The gift funds donor’s name, address and phone number
- The gift funds the donor’s relationship to the home buyer/recipient
- The dollar amount of the gift funds for the down payment
- The date the funds that transferred to the recipient
- A statement from the gift funds donor that the gift funds is not a loan and a gift and that no repayment is not expected
- The gift funds the donor’s signature
The address of the property being purchased.
Amount Of Gift Funds For Down Payment On Home Purchase Depends On Loan Type
The number of gift funds for down payment on a home purchase in relation to how much of your own money that you need to put down will depend on the type of loan program it is. Here are the restrictions of the number of gift funds you can receive depending on the type of mortgage loan program.
With Conventional Loans, if buyers are putting 20% down payment or more, than the whole amount of the down payment can be gifted. All of 20% down payment can be gifted:
- If putting less than a 20% down payment, part of the gift funds for down payment can be gifted
- However, part of the down payment needs to be from borrowers own funds
- The minimum amount of own funds depends on the type of loan borrowers apply for
- Gift funds for a down payment are only limited to primary owner occupant homes and second homes
Cannot have gift funds for investment home financing.
FHA Loans And VA Loans
Both FHA Loans and VA Loans allows 100% gift funds for down payment on home purchases. Even though there are no down payment requirements for VA Loans, those wishing to put money down on their home purchases on VA Loans can get all of the down payment for home purchase as gift funds.
- Borrowers with credit scores between 580 and 619, many lenders have overlays where 3.5% of the down payment needs to be from own fund
- All FHA Loans and VA Loans are for primary owner occupant homes only
- Homebuyers can only use gift funds for owner occupant residences only
To qualify for a mortgage with a direct lender with no overlays on government and conventional loans, please contact us at Gustan Cho Associates Mortgage Group at 262-716-8151 or text us for a faster response. Or email us at firstname.lastname@example.org. The team at Gustan Cho Associates is available 7 days a week, evenings, weekends, and holidays.